Home Sale Tax Calculator — $250K/$500K Exclusion (Section 121)

When you sell your main home you can exclude up to $250,000 of gain, or $500,000 on a joint return, if you owned it and lived in it for at least two of the five years before the sale and have not used the exclusion in the past two years (IRC §121). The gain is the price minus selling costs, less what you paid, your purchase closing costs and your improvements. Only gain above the limit is taxed, at the 0%, 15% or 20% long-term rates when you owned the home more than a year.

If you move before two years because of a new job at least 50 miles farther away, a health reason or an unforeseen event such as a divorce or job loss, you get a partial exclusion: the limit is multiplied by the months you owned and lived there out of 24. Married couples get $500,000 only if both spouses lived in the home for two years; a surviving spouse keeps the $500,000 limit for a sale within two years of the death.

Two parts of the gain are always taxable. Depreciation you claimed after May 6, 1997 for a home office or rental use is taxed at up to 25%. And if the home was rented or vacant after 2008 before you moved in, that share of the gain is taxable and does not use up the exclusion; time after you move out does not count against you. The excluded gain is not subject to the 3.8% net investment income tax, but the taxable part is.